California

Yellowave Injunction Stands; Bond Ordered

A federal judge Monday upheld a temporary injunction blocking the chairman of Yellowave Corp. and four of the company's five board members from acting on behalf of the former beauty salon franchiser turned technology incubator.

But U.S. District Judge Ronald Lew also ruled that Yellowave Chief Operating Officer Laura Ballegeer and her partner, Ron Oren, must post a $2-million bond while their fraud lawsuit against company Chairman Prosper Abitbol, his wife and two associates goes to trial.

Ballegeer and Oren, former chairman of the company, filed a lawsuit against Abitbol and his associates last month, seeking to unwind a July merger between Yellowave and Abitbol's Newtech Bandwidth Ltd. They alleged in their lawsuit that the four Israeli technology companies Abitbol said Newtech owned did not exist. Additionally, they charged that Abitbol misrepresented the involvement in the deal of Eric Benhamou, a friend of Abitbol who heads both 3Com Corp. and Palm Inc.

In ruling for Ballegeer and Oren, Lew characterized the dispute as a "difficult and troubling case," but he said that the evidence presented to the court "tipped the scale" in the favor of Ballegeer and Oren. He said there was a reasonable chance they would prevail in the trial. Any trial is likely to be nine to 12 months off, said David Kagel, a Yellowave attorney.

"The judge's decision reflects his understanding that the Abitbol group failed to fulfill the conditions called for in their agreement with the company. They were to transfer technology and licenses to the company, but never did so. It now appears that the Abitbols completely misrepresented the very existence of the technology and licenses," Ballegeer said in a statement.

Ballegeer also said that she and Oren were making arrangements to post the bond.

The case has paralyzed Yellowave, which has billed itself as an incubator for Israeli technology stock. The company saw its stock price rise more than 2,000% to a high of $24 on July 24, primarily on the strength of Benhamou's reputation, before falling to $6.75 on Aug. 23 after news of the lawsuit was reported.

The American Stock Exchange suspended trading in Yellowave on Aug. 23 and opened a probe into the company. There has been no word on when shares might trade again.

Manuel Klausner, an attorney for the Abitbols, said they are evaluating various options, including an appeal of the injunction.

"We think the judge made a mistake, but he was sensitive to the risks involved by ordering the bond to be posted by the individuals rather than the corporation," Klausner said.